The Growing Concern over Business Responsibility - Case Study Example

Corporate social responsibility Student’s Name: Course code: Tutor’s name: Date of Submision: Corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders Introduction In the world we live in today, corporate social responsibility (CSR) has become part of many organizations although some are yet to embrace it. Students, managers, and employees are interested in CSR and how it affects the society thereby creating increasing interest by the business community and the media. The relationships between business and society have been studied for decades with outcomes being influenced by the existing economic paradigm at a specific point in time. If the idea that business has duties towards society, and more specifically towards identified constituents - the stakeholders, is widely acknowledged, it is only since the 1950s and 1960s that society’s expectations have radically changed, that is, increased . The duties of a business towards the society have been referred to as corporate social responsibility (CSR). As Milton Friedman puts it, “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud (Schwartz and Saiia, 2012). In contrast to Milton’s idea was Jones (1980) who was of the idea that “Corporate social responsibility is the notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law and union contract.” It’s on these basis –whether CSR benefits the organization compared other stakeholders-that this discussion is based on. For instance, the Avatar movie focused on the purpose of corporation and its obligations toward society with respect to the displacement of indigenous people in order to extract valuable resources (Schwartz and Saiia, 2012). Corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders For quite a long time organizations have embraced corporate social responsibility for their brand differentiation reasons. Organizations organize plans for projects they would be involved in, especially the ones likely to have the highest impact on their brand. For instance, organizations may choose to be involved in environmental campaigns due to the importance of climate change problem. By such an organization undertaking climate change charity campaigns and funding environmental groups it is likely to be perceived as if it cares for the society and consumers may want to associate themselves with the company (Lee, 2008). In this way organizations are perceived as champions thus benefiting from such CSR actions, gaining competitive edge over its peers. In essence organizations end up benefitting more than other societal stakeholders. Such organizations include Timberland companies which were able to establish their voice as well as incorporating their organizational values into their business model (Smith, 2005). Pepsi and Coke rivalry has come to be referred to as the “Cola Wars” which are one of the best known long running rivalries in business. Both have always looked for opportunities to grab market share from each other. They both have been trailing strategies of zero net water usage and sustainable packaging. Coke and Pepsi have continued with these CSR measures so as to remain competitive, although may not have much benefits. Otherwise if one of them would drop their CSR measures the other company would use such a chance to gain from the other firm’s market share, thus beneficial after all. Although CSR has been used for quite a long while by organizations there has been increasing interest which can be traced, in part, to the emergence of new mechanisms of external visibility as a way of establishing themselves as reputable corporate. The reputation of a company can ruin its image, thus increasing corporate vulnerability rather than competitiveness. Therefore organizations deploy CSR as good image retainer and above par compared to their peers. As Roberts (2003, p.263) puts it “The value of Levinas’s formulation of ethics as an assignation of responsibility for my neighbour is that it makes clear that corporate social responsibility can never be just a ‘said’ notion; the ‘said’ of codes and reports can be seen as no more than the empty expression of pious wishes, which in practice amount to a flight from responsibility.” Roberts (2003) and Friedman (1962) were in agreement in that corporation is an idea, an imaginary entity, without substance or sensibility and therefore incapable of anything like responsibility. In fact CSR can only depend upon people using their delicate and crucial sentience and following the path that this assigns. Therefore if an organization is able to ‘act’ the CSR it will be able to salvage its image in case of a past bad reputation, obviously beneficial to firms. CSR of late has become a focal point in encouraging more knowledgeable decision making based on an enhanced understanding of the expectations of society, the opportunities associated with social responsibility (including better management of legal risks) and the risks of not being socially responsible. CSR enables organizations to understand the society therefore being able to make informed decisions, understanding the society expectations. Therefore, CSR brings organizations closer to the people and creating a bond between them. In this light organizations become societal members and the other societal members become part of their clientele. Social responsibility is used by organizations as a guard against legal risks that may emanate from their operations. In other words social responsibility enables organizations to act with the set guidelines thus avoiding legal charges that may arise from deviation thus CSR acts like a control. By an organization being socially responsible it shows that it is concerned with the welfare of the society in general. Since the societies are the clients of organization, by being socially responsible corporations are able to attract more clients, reduce unnecessary costs and create long term trust which are highly beneficial. The support of the society acts as an organization’s social license to operate. Further, this leads to improvement of the organization’s relationship with its stakeholders thus exposing the organization to new perspectives and contact with a diverse range of stakeholders (Lee, 2008). Corporate social responsibility by organizations has been associated with innovation generation. In the recent times innovation is becoming increasing important in determination of competitiveness than ever before. The idea of innovation and its role in the markets tends to move towards Drucker’s knowledge economy. For instance, ISO 26000 states that social responsibility can assist propel a company’s competitive edge in the market through innovation. By an organization involvement in corporate social responsibility it boosts its chances of being ISO certified –standardization. Standardization promotes and grows innovative practice which in turn boosts business profits. Standards such as ISO 14001 on Energy Management, ISO 10001’s focus on customer services and the ISO 9000 series of quality management systems are increasingly becoming foundations for companies to build upon, covering fundamental areas that may lead to competitive advantage of an organization. Further, at the national level standards like BS 25999 (from BSI in the UK) can promote stronger entrepreneurship, by mainly focusing on business continuity management (International Organisation for Standardization, 2010). In UK economy alone standardization has been shown to contribute £2.5bn (Swann, 2010), therefore a clear indicator that this standard can positively affect an organization’s profit margins. Another indicator that corporate social responsibility provides greater benefits to the organization than it does to society and other stakeholders is the British Petroleum (BP) case. In his statement to the shareholders Bob Dudley (Chief Executive Officer) his tone indicates that the acts of BP during and after explosion on the Mexican gulf was an act of conscience based on the circumstances at the time where the company decided to act way beyond what the law expected. Bob Dudley in his press brief states that ‘as a responsible party we knew we would face wide-ranging claims and potential fines’. In a move to save their image and probable damage of the company they swiftly started to engage the interested party so as to portray their concern on their livelihoods, and or environment. The company was in a fix and in any case the group chief executive knew too well that by acting before pressed to act they would save a substantial dent on their image. In a way the company acted on the fear of losing future business or the business going down the drain rather than conscience because they knew too well that claims and fines would be lodged. The company would be better placed in the eyes of the society due to their ‘humane’ act when the issue was once resolved rather than waiting for the concerned societal actors to act. Thus, the decision by the company to support local economies, research and workers was a long term calculation rather than a short term gain. In fact in the short run the company would lose as indicated by huge amounts of cash paid out and shareholder dividends cancellation which would count as ‘giving back to the society.’ In the context of BP, social responsibility is acting before the law does whose benefits outdo those other stakeholders are likely to gain. In essence BP was able to protect its image and future business through CSR (Smith, 2005; Lee, 2008). Organizations can interweave corporate social responsibility and their culture. Some organizations have adopted cultures for employees’ motivation through growth and development thus impacting positively on an organization’s ability to recruit and retain employees (Baker and Roberts, 2011). For instance, Pixar Animation Studios has a culture of employees’ growth and development while tapping and maintaining talents which is a CSR for its employees. This is accelerated by establishment of Pixar University that offers courses that foster creativity, collaboration and preventing burnout. The university raises the level of the best employees, cross training and developing mastery. The organization goes an extra mile by creating a favorable working environment whereby it has a gym, swimming pool, soccer field, volleyball courts, large atrium area with pingpong, table football and billiards. It has also provided a canteen, bar and stage. Concern for employees’ welfare is part of Pixar’s organizational culture. This contributes in reducing stress and burnout. Animators are not allowed to work more than 50 hours a week as a way of retaining the superb mentality shape. This is further boosted by weekly visit by a masseuse and physician at Pixar. The organizational culture of Pixar has contributed to its success; reducing turnover and increasing competitiveness. The employees of the company have received 16 Academy Awards and other awards due to their quality work performance through product innovation and development (Moon et al., 2012). Therefore, CSR is highly beneficial to organizations. In layman terms CSR is only seen as ‘giving back to the society’ that is organizations charitable deeds to the people in the society, for instance, giving out scholarships, feeding the poor, setting up social amenities, and free medical camps among others. However, this is an incomplete definition of CSR. Fredrick’s (1960) definition goes further in describing CSR as “social responsibility in the final analysis implies a public posture toward society’s economic and human resources and a willingness to see that those resources are used for broad social ends and not simply for the narrowly circumscribed interests of private persons and firms.” This description of CSR brings out the resource use approach that organizations are supposed to abide by. Therefore, in this regard organizations could seek use the available resources efficiently thus increased productivity (Kakabadse et al., 2005). This translates to production cost savings which are associated with increased productivity and resource use efficiency, lower energy and water consumption, decreased waste and the recovery of valuable by-products. This is an indicator that pursuing social corporate responsibility could be beneficial to organizations than other stakeholders. CSR offers a platform for preventing or reducing potential conflicts with consumers about products or service. In being socially responsible organizations are able to meet the needs of the consumers through provision of quality products and services thus satisfaction. This in turn contributes to increased value and quality perception and ultimately increased loyalty and sales (Bannerjee, 2008). The concerns of an organization towards its consumers is a plus in the success or performance of such an organization in the market; competitive advantage. Socially responsible organizations save themselves the negative campaigns by consumers and consumer groups thus beneficial to organizations. Corporate social responsibility does not provide greater benefits to the organization than it does to society and other stakeholders As the Stride Rite Company case shows CSR doesn’t provide benefits to organizations than other stakeholders. The company’s chairman (Arthur Hiatt) was a firm believer in CSR and even at one time said “If you’re pro-business, you also have to be concerned about things like jobs in the inner city and the 38 million Americans living below the poverty line” (Neimark, 1994). The company was a major supporter of such corporate social responsibility movement and had won 14 CSR awards by 1994. The executives of the company were particularly very supportive of CSR allotting 4-5 per cent of its pre-tax profits to the Stride Rite Charitable Foundation. It also sent 100,000 pairs of sneakers to Mozambique, pioneered setting up on-site daycare and elderly care facilities and gave scholarships to inner-city youth paid for Harvard University graduate students to work in a Cambodian refugee camp. However, with all this strides taken by the Stride Company to support CSR, it ended up closing its factories in depressed areas of America. This is a clear indicator that the company’s CSR culture didn’t translate to sales and cutting of costs and thus being forced to close down. Therefore, CSR doesn’t provided benefits to organizations as such more than other stakeholders. In fact the other stakeholders benefitted more from Stride (Neimark, 1994). Friedman argues that the alleged social responsibilities of business people are nothing but agents acting improperly as civil servants. Therefore, when using the resources of the principals they should ultimately serve. He is on the view that business people ultimately do more of harm than good to society (Friedman, 1970; Lantos, 2001; Moir, 2001; Mulligan, 1986). Milton Friedman’s argument takes in the increasingly hesitant attitude that many people believe toward corporations operations. They wonder whether social responsibility perceptions of ‘giving back to the society’ are merely humane acts, a core of their operations or a side show off. The people concur with Friedman notions that the social responsibility of a corporation is maximization of profits for its owners. The people wonder whether the face put on the front side of what social responsibility by businesses apply anyway (Lee, 2008; Cosans, 2009). As put by Bejou (2011) the problems with CSR are that it is mechanistic, it is rigid, and it does not distinguish between obligatory and discretionary actions. This has led many organizations to engage in CSR not necessarily because it’s beneficial but rather to counter critiques of unfettered profit seeking. Therefore, most organizations may not be undertaking CSR as a self drive but as a cover up from criticisms that may negatively affect their operations. Critics argue that CSR costs fall disproportionally on businesses. Although major corporations can afford to apportion a budget to CSR reporting therefore engagement in corporate social responsibility activities may incapacitate businesses. CSR is costly to organizations since the society expects too much from them. These expectations may not match with the demand of the organization’s goods by the society. Therefore, CSR is disadvantageous to organizations since it may not be beneficial (Kielmas, 2013). Other critics like Professor Aneel Karnani of University of Michigan argues that corporate social responsibility could be an exercise in futility. The professor goes on to state that the fiduciary duty of a company's management is on its shareholders, which CSR directly opposes. The responsibility of executives to shareholders is to maximize profits. Therefore, “a manager who deserts profits in favor of some benefits to society may expect to lose his job and be replaced by someone for whom profits are a priority.” This is the reason why some companies talk about Corporate social responsibility but do nothing about it; green washing. The bottom line is that CSR is not beneficial to organizations rather it eats on their incomes (Kielmas, 2013). Conclusion On one hand, CSR was found to have numerous benefits to organizations. The discussion has established that organizations benefits from product and brand differentiation by embracing CSR. There has been emergence of new mechanisms of external visibility as a way of establishing organizations through CSR as reputable corporate thus their image stands. Another observation is that CSR enables organizations to understand the society therefore being able to make informed decisions, understanding the society expectations. CSR brings organizations closer to the people and creating a bond between them as a guard against likely risks that may emanate from their operations. The discussion also established that CSR by organizations has been associated with innovation generation since in recent times innovation is becoming increasing important in determination of competitiveness. Organizations have further become creative by interweaving corporate social responsibility and their culture. Some organizations have adopted cultures for employees’ motivation through growth and development thus impacting positively on an organization’s ability to recruit and retain employees. CSR encompasses resource use efficiency which is crucial for increasing productivity and production cost savings. CSR also offers a platform for preventing or reducing potential conflicts with consumers about products or service, thus satisfying their needs and increasing sales. On the other hand, CSR was found to be more beneficial to other stakeholders than organizations. For instance, the Stride Rite Company case shows CSR doesn’t provide benefits to organizations than other stakeholders. The company gave out so much in CSR but ended up closing some of its factories in depressed areas. Friedman argues that the alleged social responsibilities of business people are nothing but agents acting improperly as civil servants. Therefore, when using the resources of the principals they should ultimately serve the shareholders. It has also been established that in many cases social responsibility perceptions of ‘giving back to the society’ are merely humane acts, a core of their operations or a side show off. Further, CSR at some instances was defined as mechanistic, rigid, and does not distinguish between obligatory and discretionary actions. This led many organizations to engage in CSR not necessarily because it’s beneficial but rather to counter critiques of unfettered profit seeking. Finally, some critics argue that CSR costs fall disproportionally on businesses. This move eats on the organizations incomes which would have otherwise been ploughed back or distributed to the shareholders thus non-beneficial to an organization. References Baker, M and Roberts, J 2011, ‘All in the Mind? Ethical Identity and the Allure of Corporate Responsibility’ Journal of Business Ethics, vol. 101, pp 5-15. Bannerjee, SB 2008, ‘Corporate Social Responsibility: The Good, the Bad and the Ugly’, Critical Sociology, vol.34, no.1, pp 51-79. Bejou, D 2011, ‘Compassion as the New Philosophy of Business’, Journal of Relationship Marketing, vol.10, p. 1-6. Cosans, C 2009, ‘Does Milton Friedman Support a Vigorous Business Ethics?’ Journal of Business Ethics, vol. 87, p. 391-399. Frederick, WC 1960, ‘The growing concern over business responsibility’, California Management Review, Vol. 2, pp.54–61. Friedman, M 1962, Capitalism and Freedom, Chicago, University of Chicago Press. Friedman, M 1970, ‘The social responsibility of business is to increase its profits’, New York Times, Viewed 4th May 2013 from http://ca.geocities.com/busa2100/miltonfriedman.htm International Organisation for Standardization 2010, ISO 26000 – Guidance for Social Responsibility. Geneva: ISO. Jones, T.M 1980, ‘Corporate social responsibility revisited, redefined’, California Management Review, Vol. 22, No. 3, pp.59–67. Kakabadse, N., Rozuel, C. and Lee-Davies, L 2005, Corporate social responsibility and stakeholder approach: a conceptual review Int. J. Business Governance and Ethics, Vol. 1, No. 4, p.277-302. Kielmas, M 2013, Pros and Cons of Corporate Social Responsibility, Demand Media. Viewed on 04th May 2013 from http://smallbusiness.chron.com/pros-cons-corporate-social-responsibility-56247.html Lantos, G 2001, ‘The boundaries of strategic corporate social responsibility’, Journal of Consumer Marketing, Vol. 18, No. 7, pp.595–630. Lee, M 2008, “A review of the theories of corporate social responsibility: its evolutionary path and the road ahead”. International Journal of Management Reviews, vol.10, p.53–73. Moir, L 2001, ‘What do we mean by corporate social responsibility?’, Corporate Governance, Vol. 1, No. 2, pp.16–22. Moon, H., Quigley, N. and Marr, J 2012, How interpersonal motives explain the influence of organizational culture on organizational productivity, creativity and adaptation, Organizational Psychology Review, vol.2, no. 2, pp.109-128. Mulligan, T 1986 ‘A Critique of Milton Friedman’s Essay “The Social Responsibility of Business Is to Increase Its Profits’’’, Journal of Business Ethics, vol.5, pp. 265-269. Neimark, MK 1995 ‘The selling of ethics: The ethics of business meets the business of ethics’, Accounting, Auditing and Accountability Journal, vol. 8, no. 3, pp 81-96. Roberts, J 2003 ‘The Manufacture of Corporate Social Responsibility: Constructing Corporate Sensibility’, Organization, vol.10, pp 249-265. Schwartz, MS and Saiia, D 2012 ‘Should Firms Go “Beyond Profits”? Milton Friedman versus Broad CSR’, Business and Society Review, vol.117, pp 1-31. Smith, T 2005, “Institutional and social investors find common ground. Journal of Investing, vol.14, p.57–65. Swann, GM 2010, The Economics of Standardization: An Update. London, Department for Business, Innovation and Skills. Read More